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Item 2. Management’s Discussion and Analysis

2020-08-05 compared with 2020-05-06 · 140 added, 74 removed, 128 unchanged (63% of the section changed)

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This discussion should be read in conjunction with the consolidated financial statements, related notes thereto, and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2019.

Overview and Divestiture of Movianto

Owens & Minor, Inc., along with its subsidiaries, (we, us, or our) is a leading global healthcare solutions company.

On January 16, 2020, we announced our intention to sell our European logistics business, Movianto, to EHDH Holding Group (EHDH), a privately held French company.

The divestiture is intended to provide us with a greater ability to focus on and invest in our differentiated products, services and U.S.

On June 18, 2020 (the Divestiture Date), we completed the previously announced divestiture of our European logistics business, Movianto (the Divestiture), as well as certain support functions in our Dublin office, to Walden Group SAS (the Buyer) and EHDH (as Buyer’s guarantor) for cash consideration of $133 million.

The Divestiture provides us with a greater ability to focus on and invest in our di fferentiated products, services and U.S.

distribution businesses.

A portion of the net proceeds was used to repurchase $54.1 million of our 2021 Notes through a tender offer (see Note 6, “Debt”).

We recorded losses of $56.4 million and $65.5 million, respectively, in connection with the Divestiture for the three and six months ended June 30, 2020.

We have entered into transition services agreements with a subsidiary of the Buyer, pursuant to which we and a subsidiary of the B uyer will provide to each other various transitional services.

Transition service expenses and reimbursements were immaterial for the three and six months ended June 30, 2020.

As a result of the Divestiture, the results of operations from our Movianto business are reported as “Loss from discontinued operations, net of tax” through the Divestiture Date and the related assets and liabilities were classified as “held-for-sale” in the consolidated balance sheet as of December 31, 2019.

See Note 3, “Discontinued Operations,” of the Notes to Consolidated Financial Statements for further information.

Unless otherwise indicated, the following information relates to continuing operations.

Net loss per diluted share was $(0.15) for the three months ended March 31, 2020 , as compared to $(0.18) for same period of 2019.

Global Solutions segment operating income was $7.7 million for the three months ended March 31, 2020 , compared to $21.6 million for 2019.

The declines were a result of lower revenues and continued pressure on distribution margins as compared to prior year.

Global Products segment operating income was $18.6 million for the three months ended March 31, 2020 , compared to $7.7 million for the three months ended March 31, 2019, largely reflecting an increase in revenues from higher market demand for personal protective equipment in the first quarter of 2020 compared to 2019.

Income (loss) from continuing operations per diluted share was $0.00 and $(0.14) for the three and six months ended June 30, 2020, respectively, as compared to $(0.16) and $(0.34) for the three and six months ended June 30, 2019, respectively.

Global Solutions segment operating loss was $(10.1) million and $(2.5) million for the three and six months ended June 30, 2020, respectively, compared to operating income of $17.7 million and $39.4 million for the three and six months ended June 30, 2019, respectively.

The declines were a result of lower revenues in part from a reduction in elective surgeries as compared to prior year.

Global Products segment operating income was $51.8 million and $70.3 million for the three and six months ended June 30, 2020, respectively, compared to $17.9 million and $25.7 million for the three and six months ended June 30, 2019, respectively.

The increases were a result of higher revenues from greater market demand for personal protective equipment and favorable product mix combined with continued operating efficiencies compared to 2019.

COVID-19 Update

We are impacted by the global pandemic and related effects associated with the coronavirus (COVID-19).

As a result, we updated our risk factors, which can be found in Item 1A “Risk Factors” in this document.

We are closely monitoring the impact of COVID-19 on all aspects of our global business, including how it impacts our customers, teammates, suppliers, vendors and distribution channels.

We are closely monitoring the impact of COVID-19 on all aspects of our business, including how it impacts our customers, teammates, suppliers, vendors and distribution channels.

We have taken actions to protect our teammates while maintaining business continuity as we respond to the needs from this global pandemic.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our teammates, customers, suppliers and shareholders.

Revenue in the first quarter of 2020 of $2.1 billion includes a nominal overall impact from COVID-19 as a greater demand for personal protective equipment (PPE) during the quarter, was partially offset by reduced surgical procedures beginning in mid-March.

We are evaluating various government-sponsored COVID-response stimulus, relief, and productions initiatives such as under the Defense Production Act (DPA) and recent Coronavirus Aid, Relief and Economic Security (CARES) Act.

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Revenue in the first six months of 2020 of $3.9 billion includes a significant overall impact from COVID-19 related to the reduction of surgical procedures beginning in mid-March through the end of the second quarter, which was partially offset by a greater demand for personal protective equipment (PPE).

Operating income also benefited from improved productivity and increased manufacturing output related to PPE, favorable product mix and operating efficiencies.

We are evaluating various government-sponsored COVID-response stimulus, relief, and production initiatives such as under the Defense Production Act (DPA) and recent Coronavirus Aid, Relief and Economic Security (CARES) Act.

In April 2020, under the DPA, the U.S.

Department of Defense initiated a technology investment agreement with us involving up to $30 million of anticipated funding of assets to expand capacity to supply N-95 respirator masks to the U.S.

The nature of the agreement provides a program of expedited partial funding to begin expansion while final terms are completed.

nature of the agreement provides a program of expedited partial funding to begin expansion while final terms are completed.

Through June 30, 2020, approximately $12 million had been expended and reimbursed in accordance with this arrangement.

In addition, as allowed under the CARES Act, we have filed for a $13 million income tax refund with the IRS related to the carryback of net operating losses (NOL) incurred in 2018.

This refund was included in other current assets on our balance sheet as of March 31, 2020.

In connection with this NOL carryback, we recorded a $5.2 million benefit to the income tax benefit for the three months ended March 31, 2020.

This benefit was considered a non-GAAP item, and excluded from adjusted income from continuing operations.

We are unable to predict with certainty the full impact that COVID-19 will have on our financial position and operating results due to numerous variables.

This refund receivable was included in other current assets on our balance sheet as of June 30, 2020.

In connection with this NOL carryback, we recorded a $5.2 million benefit to the income tax benefit for the six months ended June 30, 2020.

We are unable to predict with certainty the full impact that COVID-19 will have on our future financial position and operating results due to numerous variables.

Results of Operations

Three Months Ended March 31,

Three Months Ended June 30, Change

(Dollars in thousands) 2020 2019 $ %

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Inter-segment (111,321) (121,653) 10,332 8.5 %

The change in net revenue for the quarter reflected the impact of lower distribution revenues as a result of customer non-renewals that occurred in 2019 and a reduction in elective surgical procedures, primarily due to the impact of COVID-19, which we expect to continue through the second quarter.

These were partially offset by revenue growth in Global Products from increased demand for personal protective equipment.

Foreign currency translation had an unfavorable impact on Net revenue of $2.1 million compared to prior year.

Net revenue $ 1,807,719 $ 2,376,705 $ (568,986) (23.9) %

Six Months Ended June 30, Change

(Dollars in thousands) 2020 2019 $ %

Global Solutions $ 3,396,233 $ 4,258,068 $ (861,835) (20.2) %

Global Products 761,593 710,974 50,619 7.1 %

Inter-segment (227,414) (241,498) 14,084 5.8 %

Net revenue $ 3,930,412 $ 4,727,544 $ (797,132) (16.9) %

The change in net revenue for the three and six months ended June 30, 2020 reflected the impact of a reduction in elective surgical procedures, primarily due to the impact of COVID-19, and lower distribution revenues as a result of customer non-renewals that occurred in 2019.

These were partially offset by revenue growth in Global Products from increased demand for personal protective equipment and growth in Byram, our Home Healthcare business.

Foreign currency translation had an unfavorable impact on net revenue of $1.5 million and $3.6 million for the three and six months ended June 30, 2020, respectively, as compared to the prior year.

Cost of goods sold.

Three Months Ended March 31,

Three Months Ended June 30, Change

(Dollars in thousands) 2020 2019 $ %

Cost of goods sold $ 1,538,312 $ 2,090,187 $ (551,875) (26.4) %

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Six Months Ended June 30, Change

(Dollars in thousands) 2020 2019 $ %

Cost of goods sold $ 3,392,445 $ 4,164,407 $ (771,962) (18.5) %

Cost of goods sold includes the cost of the product (net of supplier incentives and cash discounts) and all costs incurred for shipments of products from manufacturers to our distribution centers for all customer arrangements where we are the primary obligor and bear risk of general and physical inventory loss.

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Gross margin.

Three Months Ended March 31,

Three Months Ended June 30, Change

(Dollars in thousands) 2020 2019 $ %

Gross margin $ 269,407 $ 286,518 $ (17,111) (6.0) %

As a % of net revenue 14.90 % 12.06 %

Gross margin in the three months ended March 31, 2020 was impacted by lower distribution revenues and unfavorable impact from foreign currency translation of $3.3 million.

The increase in gross margin as a percentage of revenue reflected strong revenue growth from an overall improved sales mix, as the Global Products revenues constitute a higher percentage of revenue.

Six Months Ended June 30, Change

(Dollars in thousands) 2020 2019 $ %

Gross margin $ 537,967 563,137 $ (25,170) (4.5) %

As a % of net revenue 13.69 % 11.91 %

Gross margin in the three and six months ended June 30, 2020 were impacted by lower distribution revenues and unfavorable impact from foreign currency translation of $1.4 million and $4.2 million, respectively.

The increase in gross margin as a percentage of revenue reflected an improved sales mix and productivity and operating efficiencies in Global Products.

Operating expenses.

Three Months Ended March 31,

Three Months Ended June 30, Change

(Dollars in thousands) 2020 2019 $ %

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Other operating (income) expense, net $ (577) $ 1,014 $ (1,591) (156.9) %

Six Months Ended June 30, Change

(Dollars in thousands) 2020 2019 $ %

Distribution, selling and administrative expenses $ 495,782 $ 519,326 $ (23,544) (4.5) %

As a % of net revenue 12.61 % 10.99 %

Acquisition-related and exit and realignment charges $ 12,118 $ 10,254 $ 1,864 18.2 %

Other operating (income) expense, net $ (2,886) $ 1,056 $ (3,942) (373.3) %

Distribution, selling and administrative (DS&A) expenses include labor and warehousing costs associated with our distribution and outsourced logistics services and all costs associated with our fee-for-service arrangements.

Shipping and handling costs are primarily included in DS&A expenses and include costs to store, move, and prepare products for shipment, as well as costs to deliver products to customers.

Overall DS&A expenses were affected by changes in sales mix and investments in the business, partially offset by operational efficiencies.

DS&A expenses also included favorable impacts for foreign currency translation of $0.3 million for the three months ended March 31, 2020 .

Acquisition-related charges were $4.2 million and $4.2 million for the three months ended March 31, 2020 and 2019, respectively, and consisted primarily of transition costs for the Halyard acquisition.

Exit and realignment charges were $1.8 million and $0.7 million for the three months ended March 31, 2020 and 2019, respectively.

Exit and realignment charges in the first quarter of 2020 were associated with severance from reduction in force and other costs related to the reorganization of the U.S.

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Overall DS&A expenses were affected by the revenue decline and change in mix and investments in the business, partially offset by operational efficiencies.

DS&A expenses also included favorable impacts for foreign currency translation of $0.3 million and $0.6 million for the three and six months ended June 30, 2020, respectively.

Acquisition-related charges were $3.9 million and $8.1 million for the three and six months ended June 30, 2020,

compared to $3.7 million and $7.8 million for the same periods of 2019.

Acquisition-related charges in 2020 and 2019 consist primarily of transition costs for the Halyard acquisition.

Exit and realignment charges were $2.2 million and $4.0 million for the three and six months ended June 30, 2020, compared to $1.7 million and $2.4 million for the same periods of 2019.

Amounts in 2020 were associated with severance from reduction in force and other costs related to the reorganization of the U.S.

commercial, operations and executive teams.

Exit and realignment charges in the first quarter of 2019 were associated with severance from reduction in force and other employee costs associated with the establishment of our client engagement center and other IT restructuring charges.

The change in other operating (income) expense, net was attributed primarily to higher foreign currency transaction gains in the quarter compared to prior year and lower software as a service implementation expenses due to the adoption of ASU No.

Amounts in 2019 were associated with severance costs, the establishment of our client engagement center, and IT restructuring charges.

The change in other operating (income) expense, net was attributed primarily to higher foreign currency transaction gains compared to prior year, gain on legal settlement, and lower software as a service implementation expenses due to the adoption of ASU No.

2018-15 as of January 1, 2020.

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Interest expense, net .

Three Months Ended March 31,

Three Months Ended June 30, Change

(Dollars in thousands) 2020 2019 $ %

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Effective interest rate 5.63 % 7.20 %

Interest expense decreased year over year primarily due to a reduction in debt, which was partially offset by an increase in our effective interest rate and the amortization of additional deferred financing costs as a result of the Fifth Amendment to the Credit Agreement in February 2020.

Six Months Ended June 30, Change

(Dollars in thousands) 2020 2019 $ %

Interest expense, net $ 44,948 $ 51,506 $ (6,558) (12.7) %

Effective interest rate 6.50 % 6.86 %

Interest expense for the three and six months ended June 30, 2020 decreased primarily due to a reduction in debt and a decrease in our effective interest rate, which were partially offset by the amortization of additional deferred financing costs as a result of the Fifth Amendment to the Credit Agreement in February 2020.

See Note 6 in Notes to Consolidated Financial Statements.

Other expense, net .

Three Months Ended March 31,

Other (income) expense, net .

Three Months Ended June 30, Change

(Dollars in thousands) 2020 2019 $ %

Other (income) expense, net $ (4,552) $ 731 $ (5,283) (722.7) %

Six Months Ended June 30, Change

(Dollars in thousands) 2020 2019 $ %

Other expense, net $ 294 $ 3,464 $ (3,170) (91.5) %

Other expense, net in 2020 includes the write-off of deferred financing costs associated with the paydown of our Term A loans of $2.1 million and third party fees incurred as a result of the Fifth Amendment to the Credit Agreement in February 2020 of $2.2 million, which was offset by a gain on extinguishment of debt related to the partial repurchase of our 2021 Notes in March 2020 of $0.2 million, and interest cost and net actuarial losses related to the U.S.

Retirement Plan of $0.7 million.

Other expense, net in 2019 includes the write-off of deferred financing costs associated with the revolving credit facility as a result of the Fourth Amendment to the Credit Agreement in February 2019 of $2.0 million and interest cost and net actuarial losses related to the U.S.

Retirement Plan of $0.7 million.

Other (income) expense, net for the three months ended June 30, 2020 includes a gain from the surrender of company-owned life insurance policies and gain on extinguishment of debt related to the partial repurchase of our 2024 Notes, which was partially offset by the write-off of deferred financing costs, third party fees incurred, and interest cost and net actuarial losses related to the U.S.

Retirement Plan.

Other expense, net for the six months ended June 30, 2020 includes the write-off of deferred financing costs, third party fees incurred, and interest cost and net actuarial losses related to the U.S.

Retirement Plan, offset by a gain from the surrender of company-owned life insurance policies and gain on extinguishment of debt related to the partial repurchase of our 2021 and 2024 Notes.

Other (income) expense, net for the three and six months ended June 30, 2019 includes interest cost and net actuarial losses related to the U.S.

Retirement Plan and the write-off of deferred financing costs.

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Income taxes.

Three Months Ended March 31,

Three Months Ended June 30, Change

(Dollars in thousands) 2020 2019 $ %

Income tax provision (benefit) $ 4,982 $ (1,146) $ 6,128 534.7 %

Effective tax rate 96.9 % 10.5 %

Six Months Ended June 30, Change

(Dollars in thousands) 2020 2019 $ %

Income tax benefit $ (3,541) (1,816) $ (1,725) (95.0) %

Effective tax rate 28.8 % 8.1 %

The change in the effective tax rates compared to 2019 resulted from an income tax benefit of $5.2 million recorded in the first quarter of 2020 associated with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the mixture of income and losses in jurisdictions in which we operate, and the incremental income tax expense associated with the vesting of restricted stock.

The change in the effective tax rates compared to 2019 resulted from an income tax benefit recorded in the first quarter of 2020 associated with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the mixture of income and losses in jurisdictions in which we operate, and the incremental income tax expense associated with the vesting of restricted stock.

Financial Condition, Liquidity and Capital Resources

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Changes in our working capital can vary in the normal course of business based upon the timing of inventory purchases, collections of accounts receivable, and payments to suppliers.

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019 Change

(Dollars in thousands) $ %

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(1) Based on period end accounts receivable and net revenue for the quarter

(2) Based on average inventory and annualized costs of goods sold for the quarter ended March 31, 2020 and year ended December 31, 2019

(2) Based on average inventory and annualized costs of goods sold for the quarter ended June 30, 2020 and year ended December 31, 2019

Liquidity and capital expenditures.

The following table summarizes our consolidated statements of cash flows for the three months ended March 31, 2020 and 2019 , which relates to continuing operations and discontinued operations:

The following table summarizes our consolidated statements of cash flows for the six months ended June 30, 2020 and 2019, which relates to continuing operations and discontinued operations:

(Dollars in thousands) 2020 2019

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Net increase (decrease) in cash, cash equivalents and restricted cash $ 111,766 $ (12,028)

Cash provided by operating activities in the first three months of 2020 reflected fluctuations in net income along with unfavorable changes in working capital.

Cash used for investing activities in the first three months of 2020 included capital expenditures of $5.7 million for our strategic and operational efficiency initiatives associated with property and equipment, investments for increased manufacturing capacity in the Americas, and capitalized software.

Cash provided by operating activities in the first six months of 2020 reflected fluctuations in net income along with favorable changes in working capital.

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Cash provided by investing activities in the first six months of 2020 included cash consideration received of $133.0 million from the sale of Movianto, proceeds of $6.0 million from the surrender of company-owned life insurance policies, and capital expenditures of $12.1 million for our strategic and operational efficiency initiatives associated with property and equipment, investments for increased manufacturing capacity in the Americas, and capitalized software.

Cash used for investing activities in 2019 included capital expenditures for our strategic and operational efficiency initiatives associated with property and equipment and capitalized software.

Cash used for financing activities in the first three months of 2020 included dividend payments of $0.2 million and repayments of $6.2 million under our revolving credit facility, compared to dividend payments of $4.8 million and proceeds from borrowings of $72.1 million for the same period of 2019.

Cash used for financing activities in the first six months of 2020 included dividend payments of $0.3 million and repayments of $47.9 million under our revolving credit facility, compared to dividend payments of $4.9 million and proceeds from borrowings of $19.9 million for the same period of 2019.

We also had proceeds from borrowings of $150.0 million related to the Accounts Receivable Securitization Program.

Financing activities also included repayments of $166.8 million in the first three months of 2020 compared to $12.4 million in the same period of 2019 on our term loans (under the Credit Agreement) and 2021 Notes.

We used $4.4 million of cash to repurchase $4.6 million aggregate principal amount of the 2021 Notes during the first quarter of 2020.

We also paid $5.8 million in financing costs related to the Fifth Amendment to the Credit Agreement in February 2020 and $4.3 million in financing costs related to the Fourth Amendment to the Credit Agreement in February 2019.

Financing activities also included repayments of $258.0 million in the first six months of 2020 compared to $24.8 million in the same period of 2019 on our term loans (under the Credit Agreement) and 2021 Notes and 2024 Notes.

We used $83.2 million of cash to repurchase $87.8 million aggregate principal amount of the 2021 and 2024 Notes during the first six months of 2020.

We als o paid $10.4 million in financing costs related to the February 2020 Accounts Receivable Securitization Program and the Fifth Amendment to the February 2020 Credit Agreement, as compared to $4.3 million in financing costs related to the February 2019 Fourth Amendment to the Credit Agreement.

Capital resources .

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and a syndicate of financial institutions (the Credit Agreement).

The Credit Agreement provides a borrowing capacity of $400 million and $697 million outstanding in term loans.

The interest rate on our revolving credit facility and Term A loans is based on the Eurocurrency Rate, the Federal Funds Rate or the Prime Rate, plus an adjustment based on our Consolidated Total Leverage Ratio as defined by the Credit Agreement.

Our credit spread at March 31, 2020 was Eurocurrency Rate plus 4.25% .

Our Term B loan accrues interest based on the Eurocurrency Rate, the Federal Funds Rate or the Prime Rate, plus interest rate margin of 3.50% per annum with respect to Base Rate Loans (as defined in the Credit Agreement), and 4.50% per annum with respect to Eurocurrency Rate Loans (as defined in the Credit Agreement).

We are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the facility.

The terms of the Credit Agreement requires us to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition.

We also have a Security and Pledge Agreement (the Security Agreement) pursuant to which we granted collateral on behalf of the holders of the 2021 Notes and the 2024 Notes and parties secured on the Credit Agreement (the Secured Parties) including first priority liens and security interests in (a) all present and future shares of capital stock owned by the Credit Parties (as defined) in the Credit Parties’ present and future subsidiaries (limited, in the case of controlled foreign corporations, to a pledge of 100% of the voting capital stock of each first-tier foreign subsidiary of each Credit Party) and (b) all present and future personal property and assets of the Credit Parties, subject to certain exceptions.

The Fifth Amendment to the Credit Agreement included additional collateral requirements related to the parties secured on the Credit Agreement, including the obligation to pledge the Company's owned U.S.

real estate and remaining equity interests in foreign subsidiaries .

Our Credit Agreement has a “springing maturity date” with respect to the revolving loans and the Term A loans and the Term B loans.

If as of the date 91 days prior to the maturity date of our 2021 Notes all outstanding amounts under the 2021 Notes have not been paid in full, then the Termination Date (as defined in the Credit Agreement) of the revolving credit facility and the Term A loans shall be the date that is 91 days prior to the maturity date of the 2021 Notes.

Likewise, if as of the date 91 days prior to the maturity date of our 2024 Notes, all outstanding amounts under the 2024 Notes have not been paid in full, the Termination Date of the Term B loan shall be the date that is 91 days prior to the maturity date of the 2024 Notes.

At March 31, 2020 and December 31, 2019 , we had borrowings of $171.7 million and $177.9 million , respectively, under the revolver and letters of credit of $11.7 million and $11.7 million , respectively, outstanding under the Credit Agreement along with $508.1 million and $512.7 million , respectively, in Senior Notes.

At March 31, 2020 and December 31, 2019, we had $215.5 million and $209.3 million, respectively, available for borrowing, which reflected the letters of credit associated with discontinued operations of $1.1 million and $1.1 million, respectively, against our borrowing capacity.

We also had letters of credit and bank guarantees outstanding for $1.5 million as of March 31, 2020 and December 31, 2019 , respectively, which supports certain facilities leased as well as other normal business activities in the United States and Europe.

The Credit Agreement provides a revolving borrowing capacity of $400 million and $686 million in outstanding term loans.

The interest rate on our revolving credit facility and Term A Loans is based on 1) either the Eurocurrency Rate or the Base Rate plus 2) an Applicable Percentage which varies depending on Consolidated Total Leverage Ratio (each as defined in the Credit Agreement).

Our credit spread on the revolving credit facility and Term A Loans at June 30, 2020 was Eurocurrency Rate plus 4.25%.

Our Term B Loan accrues interest based on 1) either the Eurocurrency Rate or the Base Rate plus 2) an Applicable Percentage of 3.50% per annum for Base Rate Loans, and 4.50% per annum for Eurocurrency Rate Loans (each as defined in the Credit Agreement).

Our credit spread on the Term B Loan at June 30, 2020 was Eurocurrency Rate plus 4.50%.

We are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the revolving credit facility.

At June 30, 2020 and December 31, 2019, we had borrowings of $130.0 million and $177.9 million, respectively, under the revolver and letters of credit of $13.9 million and $11.7 million, respectively, outstanding under the Credit Agreement.

At June 30, 2020 and December 31, 2019, we had $256.1 million and $209.3 million, respectively, available for borrowing.

The December 31, 2019 availability reflected letters of credit associated with discontinued operations of $1.1 million.

There were no letters of credit associated with discontinued operations as of June 30, 2020.

We also had letters of credit and bank guarantees outstanding for $3.6 million, of which $2.0 million are in process of being transferred to the buyer of Movianto, and $1.5 million as of June 30, 2020 and December 31, 2019, respectively, which supports certain leased facilities as well as other normal business activities in the United States and Europe.

These letters of credit and guarantees were issued independent of the Credit Agreement.

We also have a Security and Pledge Agreement (the Security Agreement) pursuant to which we granted collateral on behalf of the holders of the 2021 Notes, the holders of the 2024 Notes, and the parties secured under the Credit Agreement (the Secured Parties) including first priority liens and security interests in (a) all present and future shares of capital stock owned by the Credit Parties (as defined) in the Credit Parties’ present and future subsidiaries of each Credit Party and (b) all present and future personal property and assets of the Credit Parties, subject to certain exceptions.

The Fifth Amendment to the Credit Agreement included additional collateral requirements if the Credit Parties, including an obligation to pledge our owned U.S.

real estate and the remaining equity interests in foreign subsidiaries.

Our Credit Agreement has a “springing maturity date” with respect to the revolving credit facility, the Term A Loans, and the Term B Loan.

If the outstanding balance of the 2021 Notes has not been paid in full as of the date 91 days prior to the maturity date of the 2021 Notes, then the Termination Date (as defined in the Credit Agreement) of the revolving credit facility, the Term A Loans, and the Term B Loan shall be the date that is 91 days prior to the maturity date of the 2021 Notes.

Likewise, if the outstanding balance of the 2024 Notes has not been paid in full as of the date 91 days prior to the maturity date of the 2024 Notes, the Termination Date of the Term B Loan shall be the date that is 91 days prior to the maturity date of the 2024 Notes.

On February 19, 2020, we entered into an accounts receivable securitization program (the Receivables Securitization Program).

Pursuant to the Receivables Securitization Program the aggregate principal amount of the loans made by the Lenders (as defined) will not exceed $325 million outstanding at any time.

The interest rate under the Receivables Securitization Program is based on a spread over the London Interbank Offered Rate (LIBOR) dependent on the tranche period thereto and any breakage fees accrued.

Under the Receivables Securitization Program, certain of our subsidiaries sell substantially all of their accounts receivable balances to our wholly owned special purpose entity, O&M Funding LLC.

The Receivables Securitization Program matures on February 17, 2023.

In February 2020, we drew $150 million from the Receivables

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Securitization Program to repay portions of the Term A Loans, consistent with the terms of the Fifth Amendment to the Credit Agreement.

The Fifth Amendment to the Credit Agreement requires that any additional draws on the Receivables Securitization Program are restricted for use to repay the 2021 Notes or Term A loans to the extent those instruments are outstanding.

The Credit Agreement and Senior Notes contain cross-default provisions which could result in the acceleration of payments due in the event of default of either agreement.

The terms of the Credit Agreement also require the company to maintain ratios for leverage and interest coverage, including on a pro forma basis in the event of an acquisition or divestiture.

We were in compliance with our debt covenants at June 30, 2020.

In May 2020, we entered into an equity distribution agreement, pursuant to which we may offer and sell, from time to time, shares of our common stock having an aggregate offering price of up to $50 million.

We intend to use the net proceeds from the sale of our securities offered by this program for the repayment of indebtedness and/or for general corporate and working capital purpose.

As of June 30, 2020, no shares were issued and $50 million of common stock remained available under the at-the-market equity financing program.

From time to time, we may enter into transactions to repay, repurchase or redeem our outstanding indebtedness (including by means of open market purchases, privately negotiated repurchases, tender or exchange offers and/or repayments or redemptions pursuant to the debt’s terms).

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We cannot provide any assurance as to if or when we will consummate any such transactions or the terms of any such transaction.

The first quarter dividend of $0.0025 per share was paid in March 2020.

The second quarter dividend of $0.0025 per share was paid in June 2020.

The payment of future dividends remains within the discretion of the Board of Directors and will depend upon our results of operations, financial condition, capital requirements, current and future limitations under our Credit Agreement (as amended) and other factors.

We believe available financing sources, including cash generated by operating activities and borrowings under the Credit Agreement, will be sufficient to fund our working capital needs, capital expenditures, long-term strategic growth, payments under long-term debt and lease arrangements, payments of quarterly cash dividends, share and debt repurchases and other cash requirements.

While we believe that we will have the ability to meet our financing needs in the foreseeable future, changes in economic conditions may impact (i) the ability of financial institutions to meet their contractual commitments to us, (ii) the ability of our customers and suppliers to meet their obligations to us or (iii) our cost of borrowing.

We earn a portion of our operating income in foreign jurisdictions outside the United States.

Our cash and cash equivalents held by our foreign subsidiaries totaled $71.7 million and $52.9 million at March 31, 2020 and December 31, 2019 , respectively.

Our cash and cash equivalents held by our foreign subsidiaries totaled $66.3 million and $52.9 million at June 30, 2020 and December 31, 2019, respectively.

We continue to remain permanently reinvested in our foreign subsidiaries, with the exception of a subsidiary in Thailand.

We have no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiary located in Thailand as of March 31, 2020 .

We have no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiary located in Thailand as of June 30, 2020.

As such, we have recorded withholding tax liabilities that would be incurred upon future distribution to the U.S.

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Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year ended December 31, 2019 and Note 13 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the quarterly period ended on March 31, 2020 .

For a discussion of recent accounting pronouncements, see our Annual Report on Form 10-K for the year ended December 31, 2019 and Note 14 in the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for the quarterly period ended on June 30, 2020.

Forward-looking Statements

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• our ability to achieve revenue and operating income goals may be affected by:

COVID-19 related factors, risks and challenges, including among others, the length of time that the pandemic continues, a decrease in revenue ultimately resulting in less cash flow, longer duration in receivables collection, the need to expedite payments to important suppliers may grow, shifts in demand away from certain products we manufacture and distribute, reduced workforces which may be caused by, but not limited to, the temporary inability of the workforce to work due to illness, quarantine, or government mandates, or temporary production and distribution center and office closures due to reduced workforces or government mandates, potential resulting labor negotiations or disputes, changes in the types and numbers of businesses that compete with us, including non-traditional competitors, and the aggressiveness of that competition, and trends in elective surgeries and other healthcare spending not directly associated with COVID-19;

our ability to successfully close the sale of our European logistics business, Movianto, to EHDH Holding Group (EHDH);

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closures due to reduced workforces or government mandates, availability of raw materials, potential resulting labor negotiations or disputes, changes in the types and numbers of businesses that compete with us, including non-traditional competitors, and the aggressiveness of that competition, and trends in elective surgeries and other healthcare spending not directly associated with COVID-19;

• competitive pressures in the marketplace, including intense pricing pressure;

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and foreign tax laws and the outcome of outstanding tax contingencies and legislative and tax proposals;

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• our ability to successfully implement the expense reduction and productivity and efficiency increasing initiatives;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis